January 20, 2015

The unknown scandal of confetti money

Last week the consortium holding a £22bn contract to clean up the Sellafield nuclear site was sacked, writes David Lowry. But this is just the end of a long and scandalous tale of corporate profit at taxpayers' expense, and the active collusion of ministers and senior officials in fighting off Parliamentary scrutiny.

"It's an appalling waste of public money. It's like scattering confetti. Time extends and extends. I have looked at this two or three times now and every time I look at it the cost goes up - not in hundreds of millions, but in billions." Margaret Hodge MP, chair of Parliamentary Public Accounts committee

Last 4th November the managing director of Sellafield, the giant nuclear waste processing plant on the Cumbian coast in NW England, issued its report to the six-monthly meeting of the nuclear sites stakeholder group covering the Sellafield plant. In bullish tone he opened his introduction, boldly pronouncing: "This time last year, in my first report to WCSSG as Sellafield Ltd's Managing Director, I talked about our new strategy Key to Britain's Energy Future."I explained that I wanted a clear strategy, understood by our employees and the local community, to drive improved performance in our nationally important task of cleaning up the Sellafield Site.

"The strategy describes how we will deliver our clean up mission by keeping Sellafield safe and secure, by making demonstrable progress on all of our activities and by providing a return on taxpayers' investment through value for money and socio-economic benefit in our local community.

"Our strategy describes where we want to be, and the Sellafield plan explains how we will get there. We recently launched a companion document, the Excellence Plan which outlines activities that will improve our ability to reach our goal."Everything in the Sellafield garden is rosy

Rising to his optimistic theme he went on to claim: "Twelve months on and I believe we are beginning to see the strategy deliver improvements in performance and this gives me increasing confidence that we can achieve what we promised to do, on time and to budget ..."Looking ahead, we will continue to drive for reliable performance, an increasingly challenging task given the age of our plants and infrastructure. This means we need to strive to find innovative solutions to problems.

He concluded by noting: "We are being supported in this through a new collaborative approach with key stakeholders most associated with the delivery at Sellafield. The organisations include Sellafield Ltd, Office of Nuclear Regulation (ONR), the Environment Agency (EA), Nuclear Decommissioning Authority (NDA), Department of Energy and Climate Change, (DECC) and Shareholder Executive ..."As part of our drive for excellence we have recently completed a programme of nuclear safety culture surveys. As we achieve more successes over the next number of months alongside the member organisations," he finished off, "we will share this information at future meetings."

Two months later - sacked

Barely two months later, on 13 January, Energy Secretary Ed Davey announced in a statement to Parliament that he was sacking Nuclear Management Partners (NMP), the private consortium awarded the £22 billion top tier management contract for Britain's biggest nuclear installation, in early October 2008.Davey told MPs: "The government agreed last year with the Public Accounts Committee's conclusion that it was a priority to consider what contractual model might best deliver improved performance and value for money at Sellafield."In the meantime, we endorsed the Nuclear Decommissioning Authority (NDA)'s decision to roll the current Parent Body Organisation (PBO) contract forward into the second term (from 1 April 2014) to ensure that the progress made in the first five year term could be built upon."Sellafield Limited (the Site Licence Company which operates the site under the ownership of the PBO) continues to make progress and is currently on track to deliver against its key performance measures and milestones in 2014/15.

"Despite this progress, the NDA has concluded that a change in model is now the best way forward ... Under the new arrangement, Sellafield Limited will become a subsidiary of the NDA and will continue to be led by a 'world class team', who will be appointed and governed by a newly-constituted Board of the Site Licence Company. "DECC's nuclear quango the NDA, the owners of Sellafield on behalf of the taxpayer, produced an 8-page so-called 'Stakeholder Briefing' to explain what was going on.It states, inter alia, that: "This decision is the result of careful consideration and review of various commercial approaches in use where the public and private sector comes together to deliver complex programmes ..."The review is consistent with the undertaking that NDA gave at the 4 November 2013 and 4 December 2013 Public Accounts Committee Hearings, based on the NAO report 'Assurance of reported savings at Sellafield', HC778, 29 October 2013, that NDA would consider its options in regard to the way the Sellafield site was operated and in particular the use of the PBO (parent body organization) model."But it is as illuminating as much for what it omits as what it reveals.

A scandalous agreement to fleece the taxpayerHow could such a turn-around happen so quickly? As with everything in the nuclear industry, all is not what seems, and there is a complicated backstory to the Sellafield decision, which is startling.I have worked on this issue with Labour MP Paul Flynn for seven years, and his attempts to make transparent the deal done to give NMP the contract have been met with obstruction - by Government and the nuclear industry at every turn.In July 2008, Flynn got a sniff that some dodgy dealing was under way by the Department for Business, Enterprise and Regulatory Reform (BERR), then responsible for nuclear energy policy, to award a management contract for Sellafield to a new consortium.At its crux was the stipulation that all the potentially vast liabilities would be covered by the taxpayer, while all the profits went to the consortium,To probe this possibility, he asked the Labour minister responsible what recent communications or discussions had taken place with both the NDA and consortium applicants for the Sellafield decommissioning contract on the indemnification of the contract holder against claims arising.The now late Malcolm Wicks responded: "The Department has been informed by the Nuclear Decommissioning Authority (NDA) that it expects to have to grant an indemnity against uninsurable claims arising from a nuclear incident that fall outside the protections offered by the Nuclear Installations Act and the Paris / Brussels Convention to whichever of the four bidders for the Sellafield contract is successful.

"The NDA is conducting the Sellafield parent body organisation competition under the EU Competitive Dialogue procedure, evaluating the four bids received against agreed evaluation criteria. Within that process bidders were invited to make proposals for a nuclear indemnity under competitive tension against an established framework."It would not be viable for any of the bidders to proceed without an indemnity because any fee earning benefits of the contract would be overwhelmed by the potential liabilities. The NDA has assessed that the benefits of engaging a new contractor far outweigh the remote risk that an indemnity might be called upon. The final form of the indemnity will reflect the specific terms proposed by the preferred bidder." (Hansard, 14 July 2008 : Column 76W).But were MPs bothered?The cat was out of the Sellafield Boondoggle bag. By 22nd October - after an exchange of letters with both the then chair of the Public Accounts Committee, Tory right winger, Sir Edward Leigh, and The Speaker, over the summer, Flynn tabled an early day motion (EDM 2321) - a kind of Parliamentary kite flying with political wallpaper covering - under the title 'Parliamentary oversight of Sellafield indemnification'. It read:"That this House notes that when the Government decided to provide indemnification against insurance claims following nuclear accident at the Low-level Waste Repository at Drigg, for the new American management company, the then Minister for Energy published a written statement in Hansard of 27th February 2008 and the associated Minute was placed in the Library to allow 14 sitting days for objections from hon. Members; contrasts this open procedure with the approach adopted for a similar insurance indemnification for the new private sector management company for Sellafield, Nuclear Management Partners, when no written statement was placed before Parliament but instead, the then Minister for Energy wrote on 14th July 2008 to the chairmen of the Committee on Public Accounts and Business, Enterprise and Regulatory Reform Committee, enclosing a copy of the Minute setting out the proposed arrangements and stating that a copy of the Minute would be placed in the Library; further notes that this Minute arrived in the Library on 14th October, more than 75 days after the period for hon. Members to object officially elapsed; believes it is unacceptable for hon. Members to be denied the opportunity to comment on this Minute, the effect of which is to privatise the profits of the Sellafield management contract leaving the potentially multi-billion pound liabilities with taxpayers; declines to give approval to the proposed indemnification arrangements; and calls upon the Government to reopen the period in which hon. Members may signify objections to Government guarantees for which no statutory authority exists."In so doing, he flagged up a scandal in the making, but few fellow MPs noticed. Flynn asked a clarificatory question to the energy minister, by now Mike O'Brien, (in the newly formed Department for Energy and Climate change, headed by Ed Miliband as Secretary of State).Specifically, he enquired on what dates between 14th July and 6th October 2008 Ministers or officials of his Department met officials of the NDA to discuss the indemnification of the successful bidder for the PBO chosen to manage Sellafield, and what meetings his Department and its predecessor had had with the European Commission on the compliance with state aid rules of the Government accepting an indemnification for Sellafield.Mike O'Brien told him: "There were no meetings between 14 July and 6 October 2008 between the NDA and Ministers or officials of BERR about the indemnity for the successful bidder for the Sellafield PBO ... There have been no meetings with the European Commission on this issue. As a normal commercial arrangement involving no subsidy for the new PBO the proposed indemnity does not raise any State aid concerns." (Hansard, 11 Nov 2008: Column 1143-4W.)'It's all a ludicrous conspiracy theory'Perhaps ministers believed there were no subsidy concerns, but there were a raft of other very worrying, unresolved concerns. To air these, Flynn secured an unusual Parliamentary debate, held in Westminster Hall on 19 November 2008, under the headline: 'Nuclear Industry Finance' (Hansard, 19 Nov 2008: Column 119WH)Mr Flynn was dismissed by Mike O'Brien as a conspiracy theorist asserting that "his concoction of conspiracy theory, innuendo and hyperbole has reached new heights in the House", further telling MPs that Flynn had "exaggerated, went way over the top in his condemnations."Mr Flynn's Labour colleague, Jamie Reed - who then, as now, represented the Copeland constituency, which includes Sellafield - chipped in with the observation that Mr Flynn's exposure was an "incoherent concoction". (Hansard, 19 Nov 2008: Column 125WH)On 13 th January, after the Sellafield contact cancellation, the prodigal MP Jamie Reed, pronounced to his local paper, The Whitehaven News, that "If the contract has been terminated, it's the right decision: both inevitable and overdue ... and common sense, operational sense and business sense has now prevailed. The site will move on from this and improve. This decision is in the best interests of the industry, the site workforce and my constituents."The Ecologist's readers may judge for themselves, now that the current energy secretary has sacked NMP from their £22 billion contract, who was exaggerating - and whether or not Mr Flynn's criticisms were coherent.Freedom of Information request spills the beansJust before Christmas in 2008, the NDA delivered to my inbox 140 pages of internal memos, emails and other documentation concerning how the Sellafield contract had been awarded - after a protracted battle over disclosure for many months.Many of the documents were very heavily censored prior to release with whole pages, and the names of most of the officials involved had been systematically blanked out.Nonetheless, they included buried in the pages released, the extraordinary revelation that BERR, and the NDA, wanted to go ahead with awarding the deal to NMP, by avoiding Parliamentary scrutiny and circumventing democratic oversight, detailing how the deception of Parliament was to be effected. It was a clear scandal.The collusion between Government and the NDA on behalf of the private consortium, and manifestly against the public interest of the taxpayer, was revealed on 4th January 2009 in The Independent on Sunday - with my detailed assistance - in an article by Geoffrey Lean, 'Officials plotted Sellafield cover-up: MPs were denied the chance to challenge sweetener to private firm's nuclear deal':"A rushed timetable was drawn up which involved naming a preferred (PBO) bidder for the contract on 11 July 2008 and signing a transitional agreement on 6 October 2008. But this clashed with the long parliamentary summer recess, which ran from late July to the very day set aside for the signing.

"If the Government were to stick to its speeded-up timetable, the documents say, 'the very earliest date' in which the minute could be laid before Parliament would be 14 July, shortly before the recess began on the 22nd.

"Determined not to slow down the handover, the Government decided to reduce the period in which MPs could object. On 26 March, an official whose name and department has been blanked out emailed the official Nuclear Decommissioning Authority (NDA) to stress the requirement to 'shorten the 14 working parliamentary days that an indemnity would normally need before it can become effective'."The official added: 'To get this down to five days, we will need to muster some persuasive arguments and I wondered where you had got to on assembling these.' Two days later he was sent a 'first draft' of the argument including an assertion that the 'vulnerability of Sellafield operations is already seen as a significant safety risk'.Any time at all for MPs' scrutiny is too long"But by early June [2008], the idea of giving MPs any time at all to object had been abandoned. Another email to the NDA, from apparently the same blanked-out official, reported a 'conclusion' that a letter should merely be written to Edward Leigh MP, the chairman of the House of Commons Public Accounts Committee, 'rather than go for a shorter notice period to the House'.

Thus a minute 'explaining what has happened' would be laid before MPs only 'when Parliament reconvenes in the autumn', by which time it would be too late to raise objections. On 14 July, the then energy minister Malcolm Wicks duly wrote to Mr Leigh; he did not object and the indemnity went into force before MPs knew about it."Other confidential documents, received after two Freedom of Information Act applications, divulge that three local Councils in Somerset asked for £750,000 to fund a planning officer and legal advice from companies that want to build nuclear power stations in their areas, raising questions about conflicts of interest, and that the officially neutral NDA considered coming out in favour of new reactors."Fast forward to the Coalition's governance of Sellafield: Mr Flynn tabled another EDM, number 1048, two years ago, on 6 February 2013, which included the observation:"DECC were questioned on the probity of such huge sums being awarded (to NMP) without Parliamentary scrutiny; recalls an earlier EDM 2321 on Parliamentary Oversight of Sellafield Indemnification tabled on 22 October 2008 observed accurately that the agreement would privatise the profits of the Sellafield management contract leaving the potentially multi-billion pound liabilities with taxpayers; acknowledges the subsequent release of internal memoranda and emails between DECC and NDA officials which expose the deliberate cover up from Parliament."A damning critique hidden from Parliament

In the summer of 2013, I submitted a Freedom of Information Request to the NDA for any internal review they had conducted on the performance of Nuclear Management Partners, who had been controversially been awarded the PBO management contract for Sellafield.Finally, following the Coalition announcement that the NDA was extending the NMP PBO contract worth several more billions, the Public Accounts committee - now chaired by former Labour minister, Margaret Hodge - announced it would investigate the extended contract.Then, after initially turning down my FOI request, on appeal, NDA conceded, and sent me a copy late on a Friday afternoon in early November, just before the PAC hearing on the following Monday with the NDA and DECC officials on Sellafield.After reading the explosive criticisms contained in the internal evaluation by auditor, KPMG I forwarded it to Mrs Hodge, suggesting she might raise it with the PAC witnesses. Here is a transcript of what happened in the opening of the hearing on 4 November, as published the following day:Q9 Chair (Mrs Hodge):"On the KPMG report, which we only got this morning, my understanding is that that was never shared with the NAO. Why not?"John Clarke (NDA CEO):"The KPMG report was only completed very recently."Chair:"No, you had a copy of it in September."John Clarke:"We had a draft copy of it in September."Q10 Chair:"Well, we only got it this morning because of a freedom of information request. The final copy has a September date."John Clarke:"We have spent a considerable period of time redacting what we believe was commercially sensitive information."Q11 Chair:"That information was absolutely pertinent as to whether or not you took the view on whether to renew the contract. Why was that not shared with the NAO, even in draft form? I do not know whether you want to comment, Amyas."Amyas Morse, National Audit Office chief executive:"It would have been illuminating, knowing that we were producing a follow-up report. It certainly would have been illuminating to know of the existence of this report. I have carefully checked with my staff. As far as we know, we did not know of its existence, let alone having seen it."John Clarke:"There was certainly no intent to keep it secret. There was a lot of talk about the fact that we were producing it. It is worth pointing out that KPMG's report assessed the performance of the site over a wide period of time. It was not advising us on the right course of action."Q12 Chair:"I understand that. The report, which I have only just shared with my colleagues on the Committee, is a terrible indictment of the contract: it says that progress on major projects within legacy ponds and silos, which no doubt we will come to, 'is behind schedule and has exceeded ... cost estimates. It appears this is principally attributable to SL', Sellafield Ltd, 'often as a result of poor project management ... whilst savings have been made, overall schedule progress has not met PP11 targets, which over time risks costing more than efficiency savings generated.'"On Sellafield Ltd's capability, it says that 'there remain continued deficiencies in project management, supply chain management and resource allocation'. We then go on to leadership, where there has been a 'high turnover of SL executive secondees and a predominantly reactive response to issues.'"Governance 'does not appear to be effective or unified.' On alignment, 'parties in the PBO model are not aligned in their objectives, with fractures evident in many relationships due to complexity, competing priority and contractual tensions'. Interfaces 'do not deliver', incentives do not work, there is no appetite for risk and there is no stakeholder confidence. I cannot see anything good in that.John Clarke:"Essentially, the comments about performance fall into three categories. There is the inherent nature of Sellafield itself, with the complexities that it presents. The Major Projects Authority came in to review it recently, and their conclusion was that Sellafield presents unique technological project management and leadership challenges unparalleled anywhere."So there is the inherent nature of the beast that is Sellafield. Many of the comments you related there relate to the capability of Sellafield Ltd itself. Sellafield Ltd is the enduring entity, the site licence company, the licence holder and the environmental-"Chair:"It is wholly owned by NMP."John Clarke:"Yes it is, for the duration of the contract. But the 10,000 people work for Sellafield Ltd. One of the things we have asked NMP to do-"Chair:"NMP is responsible."John Clarke:"We have asked NMP to improve the capability for Sellafield Ltd."Q13 Chair:"What have you been doing for the last four to five years?"John Clarke:"I would say that the rate of improvement in that capability has been less than we would have wished. There have been improvements in capability, but not as much as we would have wished for."DECC Permanent Secretary Stephen Lovegrove told the PAC: "The Department knew of the KPMG report. I did not personally, but officials had sight of it and read it."Mrs Hodge observed: "It's an appalling waste of public money. It's like scattering confetti. Time extends and extends. I have looked at this two or three times now and every time I look at it the cost goes up - not in hundreds of millions, but in billions."NMP: contrite all the way to the bankIndeed so. A month later the NMP bosses themselves were instructed to appear before an enraged PAC. It was a veritable political mauling of the NMP witnesses inside the committee's coliseum.Tom Zarges, the chair of NMP, backed up again by the hapless NDA boss John Clarke, and Sellafield Ltd's MD Tony Price, told the MPs that he was "humbled and truly sorry" for mistakes made during his firm's five-year tenure at Sellafield, and vowed that they would "not be repeated in the future."Mrs Hodge observed she was "bewildered" the NDA had recently awarded NMP a five-year extension to run the nuclear site, adding caustically: "Mega-bucks are paid to NMP in fees, yet NMP does nothing [to address issues] other than waiting for the NDA to chivvy you along."Mr Zarges defensively said: "While we have had achievements, we are not satisfied with these. We are a long way from satisfied ... If we have not learned from these experiences, we are not doing our job."Meanwhile Mr Clarke conceded that he has been "disappointed with elements of NMP's performance ... The quality of leadership has been less than what we would wish for, and we have been disappointed with elements of performance. But to continue with the contract will provide a better outcome than the alternatives."Two months later, on 4 February 2014, the PAC published its devastating report 'Managing risk at Sellafield', which inter alia concluded the NMP contract for Sellafield achieved "little improvement" commercially "for extra money spent".Another conclusion was that "The use of cost reimbursement contracts for Sellafield Limited and its subcontractors means the financial risks are borne by the taxpayer. This contracting approach may be the best option where costs are very uncertain."However, as project and programme plans firm up and the lifetime plan becomes more robust, it should be possible to move away from cost reimbursement contracts. The Authority should determine how and when it will have achieved sufficient certainty to expect Sellafield Limited to transfer risk down the supply chain on individual projects and then to reconsider its contracting approach for the site as a whole."An appalling waste of public moneyOne re-imbursement was not so much financially huge as extraordinary in its absurdity: an NMP executive claimed £714 taxi fare for a family cat to go to an airport! And was paid (although later it was recovered after a public uproar).Margaret Hodge proclaimed the contract was an "appalling waste of public money ... The cost of one project soared from £387 million to £729 million in 18 months; another rose from £341 million to £750 million, with completion delayed for six years, in much the same short period."The most damning conclusion read: "In 2011-12, the Authority paid out £54 million in fees, £17 million for 'reachback' staff and £11 million for executive staff seconded from Nuclear Management Partners. Sellafield Limited also awarded contracts to Nuclear Management Partners' constituent companies worth some £54 million in 2011-12."That means, in effect, that those who let contracts awarded their own constituent companies contracts, which raises concerns about fair competition and value. The Authority should ensure all payments are linked to the value delivered and that payments are not made where companies have failed to deliver. It should also routinely provide assurance on the operation of its controls over payments for Nuclear Management Partners' constituent companies."Tom Zarges nevertheless maintained: "The first term of our contract has been characterised by many successes but also a number of disappointments and areas for improvement. Our job now is to build on our experience of the last five years to safely and reliably deliver our customer's mission, while further accelerating the pace of change and providing value for money to the NDA, Government and the UK tax payer." An NDA statement insisted that "[we] now have a much better understanding of the issues and complexities that exist at the site and the challenges that lie ahead. Whilst progress has been made on a number of fronts we will require significant improvements during the next contract period."We have had extensive discussions with NMP and made clear where these improvements must be made. We will continue to monitor performance closely and remain focused on achieving our goal of safe, effective, value for money decommissioning at Sellafield."Contract termination 'an operational matter'A few weeks later, the then energy minister, Michael Fallon, since promoted to Defence Secretary, told Paul Flynn in a written answer:"The contract review at the first break point, and the decision to continue with the contract into a second five year period, was an operational matter for the NDA. The NDA reached its decision based on a thorough review of performance in the first period of the contract and consideration of all available options."The Government endorsed the NDA's decision on the basis that it represents the best way forward at this time, giving NMP the opportunity to build on the progress made in the first five years of its contract for Sellafield Ltd (it has met some 90% of its targets to date and safety at the site has improved), address weaker areas of performance, and make further real progress in this next five year term." (Hansard, 24 Feb 2014 : Column 142W)On the day Ed Davey announced the big U-turn, by chance Treasury Permanent Secretary, Sir Nicholas Macpherson, appeared before the Parliamentary Public Administration Select Committee inquiry on 'Whitehall: capacity to address future challenges', to be challenged by committee member Paul Flynn, asking:"Just as a general principle, are you happy for the public purse to take all the risk, as I pointed out as clearly as possible in 2008, and for the private company, a foreign company, to take any profit that will come out? Is that an abiding effort for the Treasury?"

Sir Nicholas Macphersonanswered: "Put in those terms, I would never be happy with any contract like that. Ensuring that risk is borne in the right place is one of the biggest lessons of the financial crisis. I do not want to get into this individual issue, because I am not sufficiently informed about it."

Meanwhile, John Robertson MP, Labour chair of the All Party Nuclear Power Group (a nuclear cheerleader set-up) said on 16 January, three days after Sellafield management were sacked: "The industry really has turned Parliament around. We do now have a political House singing from the same hymn sheet on nuclear power. We need to work hard to keep it that way!" In so saying, he revealed just how out of touch the pro-nuclear cheer-leaders in Parliament really are.NMP paid shareholders 145m in dividendsThe Sunday Times Business section reported on 18 January that the failed NMP was paid its shareholders £145.1m in dividends during its tenure, starting with a £24.5m payout in 2009-10. The terms of its deal entitled it to £50m a year in fees from the NDA, "dependent on performance".NMP said last week it was "surprised and disappointed" to be ditched and had improved its performance and saved taxpayers £650m during its tenure. It declined to comment on the dividends.